Political Risk Management

Political Risk Management & Trade Development
The two topics are woefully intertwined yet many managers continue to view these as separate issues. I first saw this in the 1980’s… the NIMBY syndrome… you know, Not In My Back Yard… was the view of the world from many managers who failed to see the political events that eventually harpooned their international development ambitions.
Maple Creek employs a forensic approach to Trade Development anticipating issues before they become an issue by answering this simple question: “what happens before the unexpected occurs?”
Economic and geopolitical volatility create uncertainties. So, too, do changes in the deep-seated assumptions that drive business strategies. But what happens when the truly unexpected occurs? When political factors affect business? And when models, simulations, and forecasting all fail critically?
Typically, one of two things: Denial or paralysis. Both are understandable, but they do nothing to help an organization maintain or gain competitive advantage. There is a potential upside, however, for organizations with the foresight to mobilize in light of disruptive scenarios—and respond in a way that ultimately powers their performance.
Take for example Brexit and the 2016 election.
With Brexit the impact was immediate as the pound sterling lost roughly 16% of its value against the U.S. Dollar. Now what remains after all of this back and forth squabbling in the UK parliament is an unknown landscape. Those that recognize the complex geopolitical variables and develop a plan of attack for political risk management should be better positioned in the evolving UK and EU marketplace. Others that sit on the sidelines may see opportunity pass them by. So, how are you prepared?
In 2016 media outlets had already given the election to Clinton and many in the business world were prepared for another four years of the same. Enter Donald Trump. It has been repeated many times after the election’s autopsy that you should have been drowning out the noise and listening to what Mr. Trump was saying… who he disliked… who he thought treated the U.S. economy unfairly and what his ambitions were. All that is happening in todays economy was foretold, but were you prepared? I don’t think anyone could have been.
Political risk is not a new concept, rather the context has changed. Typical political risk analysis tends to be long on information about events but short on strategic advice. And when advice is offered, it’s often reactive and addresses individual risk.
So how does this relate to Trade Development? After all I did say the two were intertwined.
It would seem that since the 1970’s and maybe earlier, American businesses had been operating on the thought that integration of global markets would promote political cooperation and a leveling of those so-called “rules of the game” around the world… for the most part it did. Cars as an example no longer contained parts from one country, rather were a combination of parts produced in many countries and merely assembled in another. A car parts manufacturer who anticipated this globalization of the automotive industry would have taken advantage of this and expanded their sales in foreign markets… same for raw materials producers and so on.
Fast forward to today and the Trump administration’s highly publicized efforts to reduce the trade deficit with China. The original goal was a gradual opening of China’s political system… Turns out they had different plans and now the U.S. faces a strategic competitor who not only challenges our global dominance, but whose political vision and ideology may end up challenging its own.
This doesn’t mean that Trade Development opportunities have gone the way of the 8-Track, rather for the savvy trader the political landscape offers a pro-trade and pro-investment flavor.
Many outlets have trumpeted this Fourth Industrial Revolution where trust and credibility are fast emerging as the key competitive differentiators for organizations around the world. Perhaps it’s something Generation X demands… Transparency after all… as we typically trust no one.
For those of you just hearing about this, the Fourth Industrial Revolution is a way of describing the blurring of boundaries between the physical, digital, and biological worlds. It’s a fusion of advances in artificial intelligence (AI), robotics, the Internet of Things (IoT), 3D printing, genetic engineering, quantum computing, and other technologies.
The promise of this revolution is the potential to improve the quality of life throughout the world. The peril may be the segregation in the job market typically low-skill/low-pay versus high-skill/high-pay and its this type of risk that could both make trade development a success and failure.
Political Risk Management and Trade Development run hand in hand which brings me to restate the point of this blog - successful companies are prepared, they anticipate threats and plan for all eventualities. My 30+ years in supply chain management have taught me a couple critical skills… anticipate the impact of the weather, illness, labor unrest and public discord.
Maple Creek employs a forensic, hands-on, comprehensive approach to international trade development ultimately providing you the opportunity to anticipate legal issues before they become an issue. Global trade compliance is strategic, we help our clients assess areas of vulnerability, remove avoidable costs, minimize risk and foster international trade development. See our blog on Reasonable Care and let us know how we can help.